ECONOMYSeptember 23, 2025

Transatlantic pact hurts consumers, industry and trade

Mojmír Hampl

Reading time: 15 min

The trade agreement between the United States and the European Union presents significant problems.

This is part of GIS’s series on the U.S.-EU trade deal. Part 2 is available here.

Capitulation, surrender, submission and “a dark day for Europe.” These are just a few of the headlines appearing in European media and social networks immediately after United States President Donald Trump and European Commission President Ursula von der Leyen shook hands at the end of July to confirm a new trade agreement between the U.S. and the European Union. Together, the U.S. and the EU account for well over 40 percent of the global economy and are home to nearly 800 million of the world’s richest consumers and entrepreneurs (although this represents only a tenth of the planet’s population as a whole). So, there is indeed a lot at stake.

But how is it possible that the articles by economists and commentators in the U.S. have begun pointing to the “unrealistic promises of the EU,” the “unfulfillable commitments of the agreement,” its “pro-inflationary effects” on American households and sometimes even its “advantages for the EU”? Are they talking about the same agreement?

Part of President Trump’s talent at salesmanship comes from his ability to create nicknames and exaggerated descriptions for things. He is so brilliant at this that even his opponents often accept his monikers.

Accordingly, this is “the biggest deal ever” in his view. Is it? If it is intended to eclipse the Peace of Westphalia after the Thirty Years’ War, the results of the Congress of Vienna after the final defeat of Napoleon or the Treaty of Versailles ending World War I, then it certainly is not. The agreement is surprisingly weak and, actually, quite bad for everyone, but for reasons other than those being debated in Europe, which is full of defeatism and self-flagellation.

Let us discuss them in five points.

The poor American consumer

I. Those who will suffer most immediately and tangibly from the deal are American consumers. They import much more from Europe than Europeans from the U.S. It is because of this long-standing, alleged “rip off of America,” as Mr. Trump puts it, that the whole parade of new trade agreements between the U.S. and the rest of the world is taking place.

Approximately 70 percent of all exports from the EU to the U.S. will be subject to a 15 percent tariff, above the Trump administration’s baseline 10 percent rate. However, this surcharge will not be paid by Europeans, as President Trump claims, but primarily by consumers and businesses in the U.S. itself. A tariff is nothing more than an indirect tax.

We can think of it as a value-added tax (VAT) or a special form of excise tax expressed as a percentage. Everyone in the U.S. will now pay this import tax for goods from Europe, while the EU has committed to reducing the rate of this tax to zero for its consumers and entrepreneurs for the same range of goods imported from the U.S. Is this really a truly tragic defeat for consumers in the EU?

Characterizing this as a “debacle” sounds particularly hypocritical coming from those European politicians who praise President Trump while constantly proclaiming the need to focus on the interests of their own people. How would they view an agreement that was constructed in the opposite way? If President von der Leyen had brought in a 10 percentage-point increase in this levy for European consumers and a reduction to zero for U.S. consumers when buying European goods? Would these same people not be shouting the loudest? Would that not be an attack on the standard of living and wallets of ordinary folks? Yet this is exactly what President Trump has done to the American people.

President Trump would like lower interest rates even in the potentially inflationary environment he has helped create.

Expectations of inflation growth in the U.S. are now ubiquitous, ranging from 1 to 2 percentage points. We are just waiting to see the extent to which the tariffs gradually imposed on the whole world will be passed on to end prices (average tariffs will increase by 16-18 percentage points after agreements with 70 countries around the world have been concluded).

Of course, this may not be a one-to-one ratio, as a certain portion may be absorbed by the margins of manufacturers or retailers. We are familiar with this in the EU. Even VAT adjustments are not always reflected in prices on a one-to-one basis, but the principle is clear and indisputable.

This is one of the reasons why the U.S. Federal Reserve is nervous and remains cautious about substantially lowering interest rates. It is clear that this annoys President Trump. He would like lower interest rates even in the potentially inflationary environment he has helped create with his reckless budgetary policy to reduce the cost of servicing the alarmingly growing U.S. debt.

It is not surprising, then, that President Trump’s support is falling, particularly on the issues of rising living costs and trade. Elliott Morris’s respected long-term surveys show that President Trump already has more opponents than supporters in 40 U.S. states when it comes to his trade policy. This, however, is not mentioned in Europe.

From the EU’s point of view, it is commendable that when someone shoots themselves in their foot and aims at ours, we do not try to shoot ourselves. This is enlightened thinking at the level of the commission and some member states, which plenty of observers might not have expected. That the instinctively protectionist French were leading the charge against the deal should be a warning in itself.

List of other sufferers

II. Europe’s manufacturing sectors will also suffer indirectly. There is no doubt that Washington’s deglobalization policy is an attack aimed at the very heart of the EU’s economic model, an issue GIS has previously addressed. This is despite the general tariff being lower than previously announced and that some strategic products will now be traded bilaterally with zero tariffs (the aviation industry, some generic drugs, critical natural resources, etc.). The list is to be further expanded, even though the principle of specific higher tariffs for selected products compared to general tariffs, or even the adding of general and specific tariffs, has been dropped.

In the automotive industry, which is important for Europe, a general rate of 15 percent will apply, not the original 25 percent imposed only on cars (and certainly not the 25 percent specific duty plus 15 percent basic duty that was being discussed). Quite interestingly, according to the framework agreement reached in August, the U.S. and the EU “intend to accept and provide mutual recognition to each other’s standards” in the area of automobiles. The European bloc’s more demanding technical and safety standards were long viewed by the Americans as an unfair non-tariff barrier. As a result of this development, automotive manufacturers in Europe may soon face intensified competition from across the Atlantic.

Only steel, aluminum and copper imports remain subject to a special tariff of 50 percent. Fixed quotas on imports of both metals to the U.S. will be the subject of further difficult negotiations.

What remains outside the focus of political and even some economic debate in Europe is that the strengthening of the euro and other European currencies against the dollar has already had roughly the same impact on industry that this basic tariff will have. Since January, the dollar has weakened by almost 15 percent against the euro. This has made European products in the U.S. less competitive even without tariffs.

While this significant weakening is at least a step in the right direction from the perspective of the Trump administration’s trade goals, it adds to inflationary pressures in the U.S. and to the Federal Reserve’s legitimate concerns about price stability. Stock markets being relatively calm is only comforting to some; equities can quickly swing in the opposite direction.

Since January, the dollar has weakened by almost 15 percent against the euro. This has made European products in the U.S. less competitive even without tariffs.

III. President Trump himself, as well as his administration, are also likely to suffer in the long run. This is mainly because the agreement was accompanied by a series of bombastic promises from the EU that are either unenforceable or unfulfillable. The more astute American observers quickly noticed this. President von der Leyen was supposed to commit to the EU investing $600 billion in the U.S. over the next three years and importing $750 billion worth of energy resources over the same period. However, the commission does not have money of its own, and so these commitments are empty.

In hindsight, it seems that the commission simply added up the total volume of possible investments and commodity purchases (over which it has no control) being considered by private European companies until 2028, and accepted a megalomaniacal figure. And even if national governments did make these outlays, the commission does not have any control over their spending.

Moreover, this volume of energy imports is estimated to be about three times greater than all European energy purchases from the U.S. now, and is most likely unachievable in terms of capacity alone. It is therefore not surprising that President von der Leyen’s press release does not mention any specific amounts whatsoever. Only the U.S. side talks about them.

The American side created the impression of victory and an excellent deal, while the European side gave the impression that it would be capable and willing to deliver. After all, the EU has long excelled in making unfulfillable long-term commitments and attaching grandiose price tags to them (the Lisbon Strategy, Juncker’s plan, Next Generation EU).

One wonders now whether this was not also the case at the June NATO summit in the Hague, with its grandiose commitments on arms spending.

Let us add that the economic logic of the so-called twin deficit clearly states that increased government borrowing and higher budget deficits increase the trade deficit, not the other way around. Similarly, if a country borrows by attracting foreign-financed investment on its soil, this also pushes the trade deficit higher, not lower. Lower trade deficits would, on the contrary, be helped by less indebtedness, whether public or private. This is the core inconsistency of President Trump’s economic policy.

But who cares? If the International Monetary Fund is already predicting a significant slowdown in U.S. economic growth in both the short and long term because of the president’s economic policy, these issues can be ignored. And when a messenger brings bad news, he can be removed. That is what President Trump did in August to Erika McEntarfer, head of the Bureau of Labor Statistics, after her office revised downward key data on the number of new jobs created in recent months.

The world trade order is collapsing

IV. An important and fundamentally negative consequence of this agreement, as well as others that America is concluding with its partners this year, is the definitive dismantling of the international trade order that has been in place for almost 80 years. As early as 1947, the General Agreement on Tariffs and Trade (GATT) was signed by the original 23 signatories, followed much later by the institutionalized creation of the World Trade Organization (WTO) in 1995.

The basis of the entire system and its key principle, enshrined in the very first article of the GATT agreement, is the so-called general most-favored-nation treatment. To prevent permanent discrimination and distortions in trade, a simple rule applies: The best trade and customs conditions that one member country offers to another member of the club must automatically be offered to all other members. Because of this rule, and because today’s WTO agreement ultimately includes over 160 countries around the world, global tariffs were at a historic low at the beginning of Mr. Trump’s presidency.

President Trump is dismantling this structure and, after decades of gradual trade liberalization, is recreating an archaic system of bilateral agreements that deliberately ignore the most-favored-nation principle. Likewise, he is dramatically increasing average tariffs on imports into the U.S., which are reaching levels last seen in the 1930s. That was a period of strong American trade isolationism following the adoption of the infamous Smoot-Hawley Tariff Act in 1930, which is now seen as a rather dark chapter in American economic history directly linked to the Great Depression.

×

Facts & figures

Average tariff rates on imports into the U.S.

Of course, these moves violate international law and, according to legal experts, also U.S. law, but ultimately it will be up to international and U.S. courts to decide on the legality of these steps. By accepting the agreement with the U.S., however, the EU is unintentionally becoming part of this dismantling process.

VAT will serve to illustrate the far-reaching consequences of this move. Imagine paying different VAT or excise duties on exactly the same product in one supermarket compared to another, or even different rates depending on whether you live in one city or another.

In such a system, everyone would naturally devote considerable effort to circumventing different prices, avoiding discriminatory rates – simply gaming the system to gain an advantage. Declaring a place of origin other than the actual one would be the least anyone would have to consider when looking at their competitors. All this unproductive activity was unnecessary in the relatively smooth world of multilateral trade agreements.

V. It is true that the U.S., as the erstwhile hegemon of (not only) the international trading system, can use its power to try to change this order of things, and it also has the power to push others to behave in a similar way.

But if the strongest economy does not abide by the agreements it has committed to, why should anyone else follow the rules? Each country then has an excuse not to respect any agreement when it suits them. Some will be troubled by compliance with the Paris Climate Agreement, others by the Treaty on the Non-Proliferation of Nuclear Weapons. There are countless examples. In this context, the statement by the U.S. president that the reconciliation between Armenia and Azerbaijan “restores trade between these countries” looks more like chutzpah.

Are there winners and losers in the U.S.-EU trade deal?

It is indeed difficult, if not impossible, to say who has won or lost in the agreement between the U.S. and the EU. If one party is heading in the wrong direction and has dubious motives for its propositions, the deal will be rotten at its core. All this is true even though the agreement is still provisional, as it has to be approved by EU member states and may be subject to judicial reviews. To date, the U.S. Courts of Appeals have ruled that many of the Trump administration’s tariffs are illegal; the final verdict on this, however, will come from the Supreme Court. Much can therefore still change.

Read more on trade challenges in the Trump era

• Europe’s options in a trade war
• The demise of economic science
• Southeast Asia’s economic model at risk due to U.S. tariffs

It is possible for the Europeans to minimize damage, avoid causing unnecessary harm, work on new trade links with the rest of the world, remove internal barriers to trade, hope that the new system of high tariffs will not last long and then focus on priority areas, not on marginal ones. A trade and production bloc such as the EU, which is highly exposed to the whims of its U.S. trading partner for security and military matters, cannot have a more noble nor a more practical ambition now.

Contact us today for tailored geopolitical insights and industry-specific advisory services.

Sign up for our newsletter

Receive insights from our experts every week in your inbox.

Email*

Subscribe

Agreement GDPR

We may inform you about events and products by e-mail or other electronic means.

Information about what personal data we collect about you and how we process it (including information about how we personalize our website for you and deliver content tailored to you) can be found in our privacy policy.